Recent Purchase: Increasing My Starbucks Position

Hit it!

That’s exactly what I did today when I bought another bunch of shares of Starbucks. I initiated a position two weeks ago when the stock price decreased about 10% on one trading day. Mr. Market went very depressive that day and I immediately accepted his offer of $54.00 a share. The stock market offered an even better opportunity the days after the steep fall of the stock price. News about the departure of the CFO led to even more uncertainty about the direction and internal problems of Starbucks.

Shares have traded for prices below $50 this week and it will probably stay there for a while. Stocks which I already own are definitely in my buy zone again when I’m about 10% down. So today I hit the buy button and bought an additional 20 shares for a price of $48.95 including transaction fee. This adds $7.20 to my quarterly dividend income which equals to $28.80 on a yearly base. With these extra shares Starbucks will pay me $16.92 in total every three months. These two transactions lead to my average yield on cost of 2.78%. I like that. With an annual dividend growth rate of a very likely 20% in the next two years this averages up to a 4% yield on cost. That definitely tastes better than coffee, if you’d ask me!

While browsing the internet for analyses about Starbucks this week I crossed an analysis of Scuttlebutt Investor. I highly recommend his blog post about Starbucks here. He states:

“SBUX benefits from strong unit economics that are best in class among quick service restaurants and other peers. In the US the average new SBUX location generates revenue of $1.5mm (average unit volume or AUV) and generates a year 1 store profit margin of 34% or $510k. Based on an average store investment of  $700k in the US, this results in an ROI of ~75%. Compare this to a McDonalds with an ROI of ~30%, an average fast casual operator at ~40% or even Chipotle (at its peak before the food illness issues) at ~70%. This means that the average SBUX store earns back its investment a third of the way into its second year – very compelling unit economics. The math likely changes with higher investments in Reserve stores and premium Roasteries in the coming years but if these seek to elevate the overall SBUX experience and thus drive pricing power through the entire system, it’s the right move for the long term.”

These numbers show how massive the value creation of Starbucks is. I won’t go through the details of other relevant fundamentals. You can read more about that in my previous blog post about Starbucks.

Have you been buying shares of Starbucks lately or do you plan to in the month of July?

Looking forward to your view.

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2 thoughts on “Recent Purchase: Increasing My Starbucks Position

  1. I like the SBUX buy. I think we got a pretty good sale going on with SBUX stock. It looks like this name is high my my July potential buy and I have seen quite a few other DGI members doing the same.

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  2. These price levels are very attractive. As you said, I also noted that SBUX is a loved stock within the DGI community at the moment. This is a perfect example of how a difference in holding period makes an investment opportunity attractive (long-term view) or risky (on a short-term). Looking forward to your buys in July. Good luck!

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